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An analysis of IMF and Bank of Spain data ranging from the onset of the financial crisis of 2007-2008 through the present reveals that seven countries (France, Germany, Luxembourg, the US, the Netherlands, Italy and the UK) account for over two-thirds of total foreign investment (portfolio and direct) into Spain. Consequently, Spain’s high level of foreign debt leaves the country vulnerable to potential interest rate increases, as a higher percentage of Spanish income would get transferred abroad as debt service. To shore up international investor confidence, Spain needs to make its public debt more sustainable, as public borrowings have increased significantly in recent years, rising from 95.5% of GDP in 2019 to 121.8% of GDP as of September 2021, in contrast to the deleveraging observed in the private sector. The challenge of improving public debt sustainability is currently more pressing given the growing prospects of an increase in the risk premium if the ECB accelerates the withdrawal of its debt repurchases to tackle rising inflation.

Maudos, J. (2022). «Spain’s dependence on foreign capital flows and the need for improved public debt sustainability». SEFO – Spanish Economic and Financial Outlook 11, n.º 2 (March): 47-55.